ANNUAL REPORT - CSBS

2020ANNUAL REPORT

State-chartered banks provide:

1/2OF ALL U.S. SMALL BUSINESS LENDING79%

OF ALL U.S. BANKS ARE CHARTERED AND SUPERVISED

BY STATE REGULATORS

CORE MISSION

CSBS supports state regulators in advancing the system of state financial supervision by ensuring safety and soundness; protecting consumers; promoting economic growth; and fostering innovative, responsive supervision.

STATE REGULATORS ARE THE SOLE LICENSING AUTHORITY FOR NONBANK FINANCIAL SERVICES COMPANIES (mortgage providers, money services

businesses and consumer finance companies).

2/3

OF AGRICULTURE LENDING IN AMERICA

CONFERENCE OF STATE BANK SUPERVISORS 2020 ANNUAL REPORT 1

CSBS began 2020 with forward momentum. We were eager to implement a bold new strategic plan with a future-based

approach that looks at how technologies impact financial services and how we will respond to ensure state leadership in protecting consumers and promoting vibrant state and local economies.

Eleven weeks into the new year, the global pandemic overtook every part of our lives. Our office building shut down. Our work and meetings became remote. Our members’ most pressing needs changed.

Despite the challenges, CSBS staff quickly adjusted to these new demands. That meant meeting and sometimes anticipating our members’ needs amidst the pandemic and its economic fallout, including:

• Coordinating state and federal regulatory response

• Shaping the national response through policy and local data

• Elevating policy issues that strengthen the state system

• Reimagining our meetings and member forums for the new virtual environment

But we also kept moving forward on our strategic priorities that advanced us toward a stronger, more streamlined and more networked system of state supervision, among them:

• Opposing attempts to preempt state authority

• Improving supervision technology

• Furthering uniform regulation of nonbanks

• Creating nonbank cybersecurity examination procedures

• Developing new data tools and analytics platforms for state regulators

These high-profile initiatives demonstrate state leadership in enhancing financial sector resiliency. I am delighted to have the opportunity to share our 2020 achievements as we implemented our strategic plan and met the challenges the year brought.

Sincerely,

John W. Ryan

CSBS President and CEO

A LETTER FROM JOHN RYAN

CONFERENCE OF STATE BANK SUPERVISORS 2020 ANNUAL REPORT2

• Supporting states as they navigated stay-at-home orders and essential worker rules to enable the industry to continue its work and serve consumers.

• Launching the State Examination System (SES), a nationwide technology platform that allows state examiners to collect information from supervised institutions securely and perform key aspects of formal examinations without onsite visits.

• Deploying an updated version of the 50-state consumer finance survey that includes a comprehensive catalog of state usury laws.

• Announcing the MSB Networked Supervision program, which streamlines exams for nationwide payments companies.

• Issuing, with the U.S. Secret Service and Bankers Electronic Crimes Taskforce, a ransomware self-assessment tool for state regulators to share with their regulated institutions as ransomware attacks became the leading threat to the financial sector.

• Presenting our first MSB Accreditation in partnership with the Money Transmitter Regulators Association to the Ohio Division of Financial Institutions, setting benchmark standards for a modernized and coordinated system of supervision.

• Creating nonbank cybersecurity examination procedures and new tools and analytics platforms to aid state regulators, like the new Risk Identification for State Chartered Institutions tool.

Our support for state financial regulators included executing on our state-led strategic plan while assisting our members with their operations and with their efforts to stabilize the financial services industry during the global pandemic. Specific highlights include:

2020 HIGHLIGHTS

2020 CSBS Strategic PlanIn 2020, state regulators committed to a new strategic plan that redefines how state regulators look to the future by determining what market forces — technology, big data, artificial intelligence and automation — would most likely impact the industries we regulate and the state regulatory system in the next 10 years.

The pandemic created systemic shocks that generated confusion and uncertainty about local economic prospects across the nation and upset the usual daily operations for state agencies, their regulated institutions and CSBS staff.

We could never have anticipated the pandemic. However, our new approach to strategic planning,

which had us looking 10 years forward, prepared us to respond in a manner that supported our members. In fact, we realized that the challenges in the financial sector made the strategic plan more relevant than ever. And adapting to our new reality advanced how state regulators conduct business by years.

3CONFERENCE OF STATE BANK SUPERVISORS 2020 ANNUAL REPORT

Leveraging state-to-state

and state-to-federal

partnerships; collaborating

with innovators

Developing and supporting

the workforce of tomorrow

Developing a system of networked supervision

empowered by real-time data

Empowering a strong,

efficient and assertive

state system of financial

regulation that results in fewer calls for federal

preemption

The new strategic plan has four major objectives:

1 2 3 4


HOW OUR STRATEGIC PLANPREPARED US FOR THE PANDEMICAmid a pandemic economy and preemption threats, CSBS increased its profile by positioning state regulators as future-oriented problem-solvers with a broader array of external stakeholders, setting the stage for even greater awareness going forward. We were able to do this because of the strategic plan, which captures the possibilities that technology and data can bring to both enable and ensure the future of the state system.

CSBS QUICKLY ADJUSTED TO THE NEW DEMANDS, INCLUDING:

• Coordinating state and federal regulatory response to the pandemic

• Coordinating and partnering with federal and state agencies to issue guidance

• Participating in financial sector calls on issues like troubled debt restructuring, loan accommodations, essential workers, the Paycheck Protection Program and fraud

• Partnering with federal agencies to issue guidance documents including the primary document providing examiner guidance

• Engaging with Capitol Hill on issues like Current Expected Credit Losses, troubled debt restructuring relief and state-licensed mortgage servicers’ liquidity challenges

• Providing both state and federal analysis of the mortgage market

• Distributing off site performance tools and sharing best practices to help regulators navigate off-site examinations and supervision

5CONFERENCE OF STATE BANK SUPERVISORS 2020 ANNUAL REPORT

Our work on forbearance and foreclosure matters transpiring under the CARES Act resulted in significant public notices. We not only identified both consumer and industry need and gaps, but we also rallied the Consumer Financial Protection Bureau to join us in providing guidance through these notices. This action was followed by the delivery of state examination procedures to test industry compliance under the CARES Act. As the pandemic lingered and CARES Act deadlines approached, we raised concerns about confusion around the expiration date for mortgage relief and successfully advocated for a federal agency clarification that resulted in an extended deadline for struggling consumers.

REIMAGINING OUR MEETINGS AND MEMBER FORUMS FOR THE NEW VIRTUAL ENVIRONMENT

We began the year with exciting new education offerings, like the new Advanced Data Analytics Training Workshop in Indianapolis and held our largest-ever NMLS Annual Conference & Training in San Francisco.

As both government and the financial industry transitioned to remote work, we quickly switched to virtual meetings and conferences and found the best ways to engage participants. That included:

• Offering over 20 weekly, one-hour, live virtual discussions with members on a wide range of timely and relevant topics of common interest.

• Developing on-demand training content available in our Learning Management System.

• Launching our on-demand Day One: Bank Secrecy Act and Anti-Money Laundering (BSA/AML) Examiner training, a comprehensive series of online modules that address foundational elements of BSA/AML examinations.

• Piloting video content production software that we rapidly developed into instructional videos and tutorials on a wide range of topics.

The NMLS Annual Conference, held in San Francisco in February, attracted nearly 800 attendees.

NMLS DURING THE PANDEMIC

• Consolidated state agency guidance on the NMLS Resource Center, working with our vendors to ensure mortgage loan originator (MLO) testing, education and criminal background-check processing continued in a safe and responsible manner and facilitated governance committees to adjust system deadlines to ease the impact on licensees.

• Accommodated a surge of MLO applications, administrating more than 47,000 national MLO tests and 168,000 applications, a 63% increase over 2019.

• Launched an online proctored MLO testing option, giving candidates an alternative to taking tests in physical test centers.

As low rates drove home refinances and purchasing, we positioned NMLS Consumer Access as a vital tool in the homebuying process, resulting in several mentions in consumer media.

1 “Authorities” refers to the license programs managed on NMLS. Branch license types are not included in this count.

Total different license authorities1 managed covering a broad range of nonbank financial services.

Branch Individual

State agencies used NMLS to manage at least one license authority.

Company508 280 76

64

432

At the end of 2020 ...As of December 31, NMLS manages:

License or registration types

NMLS by the numbers


HOW WE IMPLEMENTED OUR STRATEGIC PLAN PREVENTING FEDERAL PREEMPTION

The Office of the Comptroller of the Currency (OCC) and other federal agencies proposed several rules that would preempt state laws or authority, including the OCC/FDIC valid-when-made rule, the OCC’s true-lender proposed rule and other OCC proposals pertaining to bank operations, activities and licensing. CSBS submitted comment letters and provided insight into the state system.

Meanwhile, as Congress’ interest in fintech issues continued to grow, CSBS maintained a consistent presence with the Hill to communicate states’ work in improving nonbank financial licensing and supervision.

CSBS also successfully advocated for the set of BSA/AML reform bills to include and integrate state regulators into proposed regulatory processes and structures.

OCC Litigation

In December, CSBS filed a complaint in the U.S. District Court for the District of Columbia opposing the OCC’s creation of a new national bank charter for nonbank companies and its acceptance and impending approval of a charter application from Figure Technologies Inc. By taking such action, the OCC has exceeded the limited authority granted to it by Congress under the National Bank Act and other federal banking laws that authorize the OCC to only charter institutions that receive deposits and obtain FDIC deposit insurance. The CSBS complaint is a continuation of legal action initiated in 2017.

CSBS also submitted an amicus brief supporting the New York Department of Financial Services in the U.S. District Court for the Southern District of New York. The OCC is appealing the court’s decision in favor of NYDFS’s challenge to OCC’s fintech charter. The court ruled the OCC lacks the authority to grant a charter to an entity that does not take deposits and does not obtain deposit insurance in a decision.



CSBS county-level Covid case map

We published a white-paper series that explains how nonbanks are licensed and supervised by state financial regulators and discusses issues affecting regulatory changes going forward.

With nonbank mortgage servicing now comprising more than 50% of the market, it is critical that states have a common standard for assessing these entities’ safety, soundness and corporate governance. To meet that need, CSBS

advanced an initiative to establish prudential standards for nonbank mortgage servicers by seeking public comment. Prudential standards will not only provide better protection for borrowers, investors and other stakeholders, but they also will enhance effective regulatory oversight and market discipline and improve transparency, accountability, risk management and corporate governance standards.

NETWORKED SUPERVISION & REAL-TIME DATAWe made significant progress on key Vision 2020 initiatives that empower states to operate as a single network by creating multistate agreements and expanding the use of technology platforms. As we moved into 2021, we transitioned our public commentary around regulatory modernization from Vision 2020 to Networked Supervision, which captures the promise of a modernized and coordinated state system.


CSBS created new tools and analytics platforms to aid state regulators, including:

• Risk Identification for State Chartered Institutions: Examiners can dive deeply into individual bank call report data to see fundamentals driving risk and conduct peer analysis.

• The first real-time, county-level Covid confirmed cases tracking map: The map was relied upon by media outlets, federal financial regulators and the White House.

• A suite of economic reports and dashboards: States get a head start on making sense of how Covid impacts would play out in local economies.

We made significant progress on Vision 2020 initiatives, including:

• Launching the State Examination System (SES)and Consumer Complaints tool.

• Awarding contracts to complete NMLSModernization.

• Began developing a networked licensingframework with the 64 agencies thatuse NMLS.

• Expanding the use of NMLS, as more stateagencies began using optional functionalityand as states continue to bring new licensetypes onto NMLS.

• Launching the MSB Networked Supervisionprogram, which streamlines exams fornationwide payments companies.

• Improving the licensing process through theMultistate MSB Licensing Agreement, which nowhas 28 state signatories.

• Announcing the MSB Networked Supervision OneCompany/One Exam program, which beginningin 2021 will apply to 78 of the nation’s largestpayments and cryptocurrency companies thatmove more than $1 trillion a year in customerfunds.


DEVELOPING THE WORKFORCE OF TOMORROWWe are committed to developing the workforce of tomorrow, collaborating with state regulators to identify the knowledge, skills and abilities that examiners need to possess and build upon at key stages of their careers,

developing learning content and experiences that will increase the examiners’ speed to competency and delivering these learning experiences in the most effective and efficient manner — no matter what the format.

In 2020, in partnership with the Money Transmitter Regulators Association, CSBS presented the first MSB Accreditation to the Ohio Division of Financial Institutions, marking another significant milestone in the state regulatory system’s evolution toward a more networked system of supervision.

The Examiner Certification and Accreditation programs remain among the most valued and sought-after member services we offer.

In 2020, there were:

Our Accreditation Program grew to offer a third accreditation for MSB regulatory agencies, in addition to the existing bank and mortgage program. The number of agencies accredited for each are:

1,200Certified examiners

Designations for bank and non bank examiners26

2 MSB (Ohio and Texas)47Bank 29Mortgage

44Agencies


PARTNERSHIPS AND COLLABORATIONWe made several strides leveraging partnerships with our state and federal counterparts, working in collaboration with those we regulate and their vendors:

• Following unanimous passage of the House bill to amend the Bank Service Company Act to improve state-federal coordination and information sharing on bank vendor oversight, CSBS secured the introduction of a companion bipartisan Senate bill.

• Recognizing the remarkable rise of ransomware attacks, which have become the number one threat to the financial sector, CSBS joined the U.S. Secret Service and Bankers Electronic Crimes Taskforce to issue a ransomware self-assessment tool for state regulators to send to the banks they supervise.

• CSBS deployed an updated version of the 50-state consumer finance survey that includes a comprehensive catalog of state usury laws.

• The growing awareness of the states’ fintech initiatives lead to the United Kingdom government hosting a delegation of state regulators and CSBS staff in London for meetings with HM Treasury and several U.K. financial regulatory agencies, including the Bank of England and the U.K.’s Financial Conduct Authority, the U.K.’s fintech regulator. The delegation also met with a range of financial industry representatives.

FDIC Chairman Jelena McWilliams and CSBS President and CEO John Ryan record a podcast together at the CSBS studio in January.


CBSI: The Community Bank Sentiment Index was not even a year old when the pandemic hit in March, but its relevance was on clear display. As the first quarter results came in, we literally watched the economy crater in real time as banker sentiment dropped. We later saw the economy stabilize. The quarterly index told us the story of what community banks could see throughout the year — information later supported by bank performance data.

2020Q3

97Sentiment

Business conditions

Monetary policy

Regulatory burden

Capital expenditures

Operations expansion

Profitability

Franchise value

2020Q4Sentiment

2019Q4

123Sentiment

They will be better than today.

They will be the same as today.

They will be worse than today.

I don’t know.

98

86

115

137

62

120

40

127

(+17%)

(-4%)

(-17%)

(+2%)

(+4%)

(-6%)

(+11%)39% 12%

20% 58%

39%

35% 20%

61%

6% 20%

38% 18%

43%

20%

54% 5%

44%

35%

62% 12%

38% 6%

RESEARCH

2020 Case Study winning team from Mississippi State University

CASE STUDIES: CSBS sponsors the annual Community Bank Case Study Competition for students in all fields of study as an opportunity to gain valuable first-hand knowledge of the banking industry. The 2020 case studies focused on the impact of the BSA-AML requirements on community banks. Each student team partnered with a local bank to examine compliance challenges and identify potential regulatory reforms. The winning teams were from Mississippi State University (first), James Madison University (second) and Mansfield University of Pennsylvania (third).

COMMUNITY BANK RESEARCH CONFERENCE: The eighth annual Community Banking in the 21st Century Research and Policy Conference, co-sponsored by CSBS, the Federal Reserve System and the FDIC, redefined itself as a virtual platform in 2020. State and federal policy makers, academics and community bankers gathered online to hear the latest research on community banking. Federal Reserve Governor Michelle Bowman opened the conference with how community bankers were managing the pandemic and its economic fall-out, and FDIC Chairman Jelena McWilliams shared her views in a fireside chat.

Federal Reserve Board of Governors Miki Bowman addresses the Community Bank Research Conference


Chair KEVIN B. HAGLERGeorgia

CSBS BOARD OF DIRECTORS

Chair-ElectMELANIE HALL Montana

Vice ChairTHOMAS C. FITE Indiana

TreasurerI. LISE KRUSE North Dakota

SecretaryCHARLES CLARKWashington

Immediate Past ChairBRET AFDAHLSouth Dakota

Non-Depository Supervisory Committee ChairDEBORAH HAGANIllinois

Legislative Committee ChairIRIS IKEDAHawaii

Regulatory Committee Chair KAREN K. LAWSONMichigan

State Supervisory Processes Committer ChairCHRISTOPHER DIETZIndiana

CSBS Education Foundation Board of Trustees ChairCHARLES A. VICEKentucky

State Regulatory Registry Board of Managers Acting ChairCHARLES G. COOPERTexas

Bankers Advisory Board Co-ChairRAY GRACE North Carolina

Bankers Advisory Board Industry Co-ChairANDY ANDERSONPresident & CEOBank of Anguilla

District I ChairANTONIO P. SALAZARMaryland

District II ChairKEVIN R. ALLARDOhio

District III ChairRHOSHUNDA G. KELLYMississippi

District IV ChairKELLY LAMMERSNebraska

District V ChairROBERTA HOLLINSHEADWashington

Member at LargeCHARLES G. COOPERTexas

Member at LargeLINDA A. LACEWELLNew York

Chair EmeritusALBERT L. FORKNERWyoming (2017-18)

CHARLES G. COOPERTexas (2016-17)

CHARLES A. VICEKentucky (2013-14)

GREG GONZALESTennessee (2012-13)

E. JOSEPH FACE, JR.Virginia (2006-07)

MICK THOMPSONOklahoma (2003-04)

G. EDWARD LEARYUtah (1997-98)

CONFERENCE OF STATE BANK SUPERVISORS www.csbs.org / @csbsnews

Documents

ANNUAL REPORT - CSBS